Quick Facts

Zimbabwe’s economic freedom score is 37.6, making its economy the 175th freest in the 2015 Index. Its score has increased by 2.1 points from last year, driven by a particularly large gain in the control of government spending and improvements in six other economic freedoms including trade freedom and fiscal freedom. Nonetheless, Zimbabwe is ranked last out of 46 countries in Sub-Saharan Africa, and its overall score remains far below the world and regional averages.

After near economic collapse in the late 2000s, Zimbabwe has experienced five consecutive years of improvements in economic freedom. Over the past five years, economic freedom in Zimbabwe has improved by 15.5 points, the largest improvement of any nation. The biggest score gains have been in monetary freedom and the control of government spending. A move to dollarize the economy has brought the hyperinflation of 2008 and 2009 under control.

Nevertheless, Zimbabwe remains one of the world’s least free economies. President Robert Mugabe’s government is corrupt and inefficient. The labor market is one of the most restricted in the world, and business licensing forces most workers to seek employment in the informal sector. The violent seizure of land has underscored poor government land reform policies and upset investor confidence in a once-vibrant agricultural sector.

Background

When it became independent in 1965, Zimbabwe had a diversified economy, well-developed infrastructure, and an advanced financial sector. It is now one of Africa’s poorest countries. In July 2013, President Robert Mugabe of the Zimbabwe African National Union–Patriotic Front was re-elected to his seventh five-year term, and his party won three-quarters of the seats in parliament in a peaceful but flawed election. In March 2013, voters approved a new constitution that would roll back presidential power. After decades of corruption and mismanagement, Zimbabwe now faces a cash crisis and declining support from China. In 2014, poor harvests left 2.2 million people in need of food assistance.

Corruption remains endemic. Civil servants may make unpredictable demands for unofficial payments for a variety of “services.” Pressure from the executive branch has substantially eroded judicial independence. The government has repeatedly violated property rights. Its land reform program, characterized by chaos and violence, badly damaged commercial farming.

The top individual income tax rate is 46.4 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax and a capital gains tax. Overall tax revenue equals approximately 26.3 percent of domestic income, and government spending is equal to 29.3 percent of gross domestic product. Public debt amounts to 55 percent of domestic output.

The regulatory framework remains costly and time-consuming. Incorporating a business costs more than the level of average annual income, and completing licensing requirements takes over 400 days. The formal labor market remains rudimentary. Dollarization, instituted in 2009 to end hyperinflation, now raises the specter of deflation as the U.S. dollar strengthens and the government continues to delay meaningful structural reforms.

Zimbabwe’s average tariff rate is 13.3 percent. Imports may face significant delays. Foreign ownership levels are capped by the government, and numerous state-owned enterprises distort the economy. The small, bank-dominated financial system is vulnerable to state interference. Nonperforming loans have risen to over 15 percent of total loans. Much of the population remains outside of the formal banking sector.